=20 ---------------------------------------------------------------------- This article was sent to you by someone who found it on SF Gate. The original article can be found on SFGate.com here: http://www.sfgate.com/cgi-bin/article.cgi?file=3D/chronicle/archive/2002/11= /30/MN129152.DTL ---------------------------------------------------------------------- Saturday, November 30, 2002 (SF Chronicle) Bankruptcy 'inevitable' for United/Mechanics reject pay concessions; airlin= e, union in last-minute talks David Armstrong, Chronicle Staff Writer A key credit rating agency downgraded the debt of United Airlines' parent company Friday, saying that bankruptcy was "virtually inevitable" for the ailing airline. The move, following a refusal by United's mechanics on Wednesday to agree to major wage concessions, drove shares in UAL Corp. down $1.12, or 31 percent, to close at $2.51 in heavy trading on the New York Stock Exchange. The stock has lost 92 percent of its value since just before the attacks of Sept. 11, 2001. "The mechanics' vote makes bankruptcy virtually inevitable for United and UAL," credit analyst Philip Baggaley of Standard & Poor's told the Associated Press. Standard & Poor's has downgraded UAL's long-term corporate debt rating to junk status. Should United go into Chapter 11, travelers won't see major changes, at least not at first, aviation industry experts say. The airline would continue to fly during reorganization and other carrie= rs would honor United tickets should it become necessary, said Michael Boyd, principal of the Boyd Aviation Group, in Evergreen, Colo. United's chief financial officer, Jake Brace, has said the carrier will fly at or near its normal schedule soon after any filing. But, over time, that seamless transition could begin to unravel. "What consumers see will vary at the beginning, middle and end," said Kevin Mitchell, chairman of the Business Travel Coalition. "In the beginning, what people will notice most is poor morale among the workers, which is important and noticeable in a service business," Mitchell said. "In the intermediate term, there would be some reduction in flight operations, probably including a move to smaller aircraft, with some routes being abandoned altogether. You're not going to lose service to major business centers from San Francisco, but smaller communities could lose service to those centers," he said. FREQUENT FLIER CHANGE United's frequent-flier plan, Mileage Plus, would not go away, Mitchell said, but it could be restructured. One possible change, he said, could be awarding points "based on dollars spent rather than miles flown," to reward coveted high-spending customers. US Airways, which went into Chapter 11 in August, has not substantially altered its frequent-flier program, a customer-friendly feature industry experts consider a key to recovery for any airline. United Airlines scrambled Friday to avoid filing for bankruptcy after its mechanics rejected a major wage concession to the money-losing airline. Executives of UAL Corp., United's parent company, and District 141-M of the International Association of Machinists and Aerospace Workers held new talks Thursday and Friday intended to reconfigure the rejected pact. The spurned deal was a tentative agreement to slash the union members' wages by $1.5 billion over the next 5 1/2 years. PROSPECTS NOT BRIGHT Securing an agreement with District 141-M, which represents 13,000 mechanics and other employees, coupled with similar pacts with pilots, flight attendants, nonunionized workers and others, is a key part of a projected $5.2 billion in wage concessions that United hopes will allow it to avoid filing for Chapter 11. The prospects did not seem bright. Most industry analysts said that the machinists' no-vote, announced late Wednesday, will make Chapter 11, and hence additional cutbacks and changes, much more likely. Union officials and United executives did not immediately return phone calls Friday seeking comment on their renewed labor talks. United, the world's second-largest airline, employs 16,000 people in Northern California and is the dominant carrier at San Francisco International Airport, where it has half of all passengers and flights. United, based in suburban Chicago, has lost $4 billion since mid-2000. Since the Sept. 11 terrorist attacks, the ailing airline has reduced its workforce from 100,000 employees to 83,000 employees and cut the number of flights by 20 percent. Bankruptcy or no bankruptcy, further reductions are on their way. UAL has already announced plans to furlough 2,700 flight attendants beginning Jan. 31. It will reduce flight operations by 7 percent next year, and shrink its workforce by 9,000 workers through attrition in 2003 and 2004. Reducing labor costs is considered to be a crucial part of United's application for a $1.8 billion federal loan guarantee from the Air Transportation Stabilization Board. The board's ruling is expected any day, perhaps as early as Monday, the due date for United to repay $375 million in debt. UAL has up to 10 additional working days to repay the debt, which could push the payment deadline back to Dec. 16 and give the company more room to maneuver. UAL Chief Executive Glenn F. Tilton has said securing a government loan guarantee is essential to help the cash-strapped company avoid filing for Chapter 11. CONTRACTS COULD BE VOIDED If United files for bankruptcy, changes will be more dramatic for its employees than for the traveling public. A Bankruptcy Court judge could, for example, void existing union contracts, some industry analysts say. Chapter 11 would also make employee-owned UAL stock, presently 55 percent of UAL stock, worthless. Restructuring could also result in the removal of pilots' and machinists' union representatives from the corporate board of directors, reducing labor's clout with management. Mitchell said the mechanics' no-vote may be motivated by anger or brinkmanship. Whatever the reason, he said, it could backfire if talks don't result in a new agreement acceptable to the rank and file. For United, Chapter 11 could be a wildly unpredictable trip, he said. "Do we emerge (from Chapter 11) with our Atlantic routes intact? Our Pacific routes intact? Our wide-body aircraft in service? If United files for Chapter 11, it could emerge as a smaller airline, with job losses. "They're really rolling the dice," Mitchell said. Chronicle news services contributed to this report. / E-mail David Armstrong at davidarmstrong@sfchronicle.=20 ---------------------------------------------------------------------- Copyright 2002 SF Chronicle